LGI Homes posts higher profit amid housing-market headwinds

An LGI Homes crew works on a new home on Nina Road in the Chase Run community in Conroe on May 12, 2016. (Photo by Jerry Baker/Freelance)

Photo: Jerry Baker, Freelance

LGI Homes, a builder of entry-level homes, reported a 12 percent increase in its third-quarter profit, largely the result of a lower effective tax rate, the company said Tuesday.

Home closings, however, were down 7.4 percent, The Woodlands company said in a third-quarter earnings report, citing consumers' concerns over rising mortgage rates and affordability.

LGI's business model focuses on turning renters into first-time buyers. The company markets its homes based on monthly payments as opposed to total home prices.

"We continued to see strong demand and increased traffic in our information centers, from renters wanting to convert to homeownership, proving that buyer interest levels are still high," CEO and Chairman Eric Lipar said in a statement. "Our focus on keeping margins consistent and offsetting rising costs, coupled with rising interest rates, has created some challenges around affordability, ultimately slowing our absorption pace in recent months."

During the third quarter, LGI's net income was $37.7 million, or $1.52 per share, on home sales revenue of $380.4 million, up 4 percent over last year.

The company closed 1,601 homes during the quarter, with an average sales price of $237,582, compared with 1,729 closings at an average price of $211,623 a year ago.

The company attributed the sales decline to its Central and Florida divisions, where it closed out some of its existing communities.

Gross margin as a percentage of home sales revenue for the third quarter was 25.6 percent, compared with 25.1 percent a year earlier, LGI said. The increase was due primarily to a higher average home sales price, which was offset by higher land and construction costs.

Nancy Sarnoff covers commercial and residential real estate for the Houston Chronicle and the paper’s two websites: Chron.com and HoustonChronicle.com. She also hosts Looped In, a weekly real estate podcast about the city’s most compelling people and places. Nancy is a native of Chicago but has spent most of her life in Texas.